Point-CounterPoint: Hosted Voice vs. CPE

by Dave Michels
This post is part of a Point-CounterPoint open debate with fellow telecom bloggerMichael Graves. In this new series, we both take extreme positions on a given topic. In combination these two opposed views are designed to provide a more complete perspective. To read the CounterPoint of this topic, click here. Also, Michael wrote an introduction to the Point-CounterPoint series here.

There has been a considerable amount of press lately that 2010 is the year for hosted voice. That there is no longer any reason to own telephone systems. Some reports are predicting extreme and rapid growth of hosted voice services over the next few years. It is all very interesting and I for one, love great fiction. But let me offer a dose of reality. Hosted voice is not new nor has it changed much since its inception a bit less than a decade ago. It can make sense with unusual requirements, but will never make sense in all or even most situations. None of these rapid growth assumptions suggest anything has changed because it hasn’t.
Hosted voice goes way back to various forms of Centrex services. Again, it made sense in some situations (particularly for the hosting company), but the on-premise phone system has been the default predominant solution for fifty years. Before I get into why, let me also point out that the three North American phone equipment leaders; Cisco, Avaya, and Mitel are still in the business of selling phone systems. None of them directly offer hosted voice services.

Let’s take a look at the hosted voice model. Since no two services are alike, it is hard to summarize, but here’s a few broad strokes. Hosters tend to make the customer buy their own phones (so much for the no hardware promise). They tend to quote services per seat around $30/mo/phone

forever. Included in that price is basic service, unified messaging, click-to-dial, and “unlimited” minutes. Advanced features such as basic call center capabilities, reporting, and inbound fax services are usually billed extra. They also tend to charge extra for not so advanced features like auto attendants, call recording, and unused numbers. Then comes the list of features most don’t even offer like mobile phone integration, Skype integration, paging/intercom, shared appearances (boss/admin functions), etc.The major attractions to hosted are illusions. There is the perception that hosted systems are less administration. But the reality is most phone systems use a web GUI for administration and the difference between hosted and on-premise is actually minimal. That’s basic admin, what about system upgrades? System upgrades can be a little more work, but they should be. Upgrades should be approached as needed and tested before implementing. This all goes out the window when a hosting company determines when and why upgrades occur. Consider Microsoft’s XP to Vista upgrade, many organizations chose against it. Phone systems are increasingly integrated with other business systems. It is nice to have a choice and coming in one morning to discover critical integrations no longer work is not a feature.

Then comes the price arguments. The hosting companies use two forms of misdirection here; rent vs. own and economies of scale. The rent vs. own argument is as old as purchasing itself. The hosting companies will say that renting
foreveris less expensive than purchasing once. For reasons only a CPA can understand, sometimes this is indeed true. But the beauty with phone systems is you can rent or buy them. To rent them, the term is an “operating lease”. After the lease, usually 3-5 years, the leasing company takes it away or offers to sell the equipment at a depreciated price. Just as with cars and homes – rent vs. buy is a financial decision not a technical one. What is the important thing about hosting is it never ends. In the best scenario when all goes well and your business grows, so does your telecom bill! It never ends. And the day you terminate the hosting service, you got nothing to show for it. There are plenty of decades old phone systems out there still working just fine.The economies of scale argument goes something like “don’t pay for capacity you don’t need”. Alternatively, hosters (overcharge) for everything a la carte. In the old days of phone systems, cards came with 12 (or similar) number of ports – thus to add a 13th phone, required buying 24 ports. Today’s systems are software licensed…. it means you buy the number of licenses you need. That’s what the hosting companies are doing, and they act as if no one else can do it. A license tends to run about $50-$100 one time – why finance that


A la carte is not an exaggeration; unlike owning a system- the hosting companies (over)charge for each mailbox, each auto attendant, each extension or call. Visualize hosted voice as a giant virtual payphone and every time you want to do something/anything you need to drop in another coin; forever.The next big issue is bandwidth. Hosted services generally offer one of two versions… service with required bandwidth or BYO bandwidth. The advantage of dedicated bandwidth is quality of service. Hosters usually offer one carrier at above market rates. BYO BW solves that, but means all of the conversations flow over the public Internet with no assurance of quality or security. Conversely, phone systems are simple: any type of service (analog, T1, PRI, or SIP) over private or public networks at the lowest price available.

Also consider business continuance- of the hosted company. On July 16, 2007, SunRocket, a consumer hosted voice company, ceased operations with no warning given to customers or employees. Frantic calls to customer support were promptly answered with a recording stating that their offices were permanently closed. Could this happen again? Yes. Major carriers have been around for so long we easily forget how turbulent telecom really is. Think you are safe with big names? AT&T; CallVantage hosted voice was discontinued just last year. An onsite phone system with multiple carriers completely eliminates this risk. Even if your company disappears (Nortel) the equipment keeps working. Very few of today’s hosted companies were around just three years ago, and don’t expect the players to look the same three years from now. Hosted voice is a voice shell game. They promise great value and benefits, but good luck finding it. Underneath every cup is nothing. Great value? nope, not here. Unified messaging? not synchronized (delete once). Fax? not outbound (inbound usually via PDF for a fee) Intercom? Paging? Mobile integration? Carrier Diversity? There must be value somewhere… oh there it is, it’s called a phone system.

Still not convinced? I have some wonderful “vacation” swamp land for sale in Florida. 

Disclaimer: the authors are intentionally taking extreme positions for the benefit of the series. Their personal opinions may not mirror the opinions expressed. See the Counter-Point here.